Want to get stories like this every day? Subscribe to our free Deal Alert newsletter today!
The airline industry’s most persistent rumor is that American Airlines will file for bankruptcy, within a few days or weeks, at most. These days, however, “bankruptcy” doesn’t equate to “out of business,” especially with airlines. Although almost everybody expects American to file, they also expect that, for travelers, it will be “business as usual.”
American will likely do what all of its big “legacy” competitors have done, some more than once: File for Chapter 11 bankruptcy, “clean up” its balance sheet, eliminate many potential losses, and continue flying with an improved cost structure. In such a planned or “pre-packaged” bankruptcy, the company and its advisers get all the big financial stakeholders on board the plan in advance, and the process goes ahead with no surprises.
In the scenario everybody expects, American’s bankruptcy will have no immediate impact on its passengers. If you have a ticket on American, chances are your flight will operate as scheduled, with no disruption. It you’re considering a future flight on American, don’t be afraid to reserve and ticket it. It’s unlikely that the bankruptcy will have any immediate impact on American’s future schedules. If American senses any fall off in ticket sales, however, you can expect some aggressive promotions.
Frequent flyers in all previous big-line bankruptcies have been fully protected, and I see no reason why this one should be any different. Your miles will remain intact, along with any elite status you have, and American and partner lines will honor outstanding and future award flights.
So who does get hurt? Clearly, somebody is going to lose out in this process: Holders of American’s common stock are likely to lose much or all of their value; retired employees are likely to see their pensions and retiree benefits severely curtailed; current employees will face significant pay cuts, loss of some benefits, and downgraded retirement programs; and big creditors may be asked to accept some form of future equity in exchange for American’s outstanding debts.
In the long-term future, many airline mavens expect American to acquire or merge with some other good-sized U.S.-based line. Once number one in the domestic skies, American is now dwarfed by the recently merged Continental-United and Delta-Northwest combinations. Merger hasn’t been practical in the past, however, because bringing another line into American’s high cost structure made no sense.
Post-bankruptcy, with a leaner cost structure, American’s biggest challenge will be to find an airline (1) with a good route and product fit and (2) willing to merge with American. The most often mentioned target has been Alaska—a well-managed line with a reputation for a quality product and route structure that would greatly expand American’s reach in the West. At least so far, however, Alaska has maintained a position of “no, thanks” to any such offer. The other unaffiliated big airline is US Airways, but its route fit isn’t anywhere close to being as good as Alaska’s, and many believe that it’s not an attractive merger possibility. American would love to merge with British Airways, but that’s not going to happen for decades, if ever. And even the biggest low-fare line (other than Southwest, of course, but that’s unlikely) would be too small an addition to make any significant dent in American’s market position, let alone the problems with huge product differences.
In sum: As an American traveler and frequent flyer, you would find that a planned and well-scripted bankruptcy would be virtually “transparent.” Other stakeholders will get hurt—some a little, some a lot.
To be sure, something could go amiss and the airline might have to fail. But that outcome is extremely remote and one that would likely be foreseen early enough for you to avoid problems. In all probability, a bankrupt and coming-out-of bankruptcy American Airlines will keep flying—and honoring its commitments to you.
We hand-pick everything we recommend and select items through testing and reviews. Some products are sent to us free of charge with no incentive to offer a favorable review. We offer our unbiased opinions and do not accept compensation to review products. All items are in stock and prices are accurate at the time of publication. If you buy something through our links, we may earn a commission.
Top Fares From
Today's Top Travel Deals
Brought to you by ShermansTravel
Colombia: Choose Your Length of Stay...
Indus Travelsvacation $505+
Wisconsin Dells Water Park Resort w/Meals,...
Rome to Istanbul: Luxe, 11-Night Mediterranean...
Oceania Cruisescruise $3999+